Chinese officials blast Senate currency bill

The U.S. Senate voted to slap duties on Chinese imports in response to China's undervalued currency.

WASHINGTON (CNNMoney) -- In a rare showing of bipartisanship, the Senate passed a bill on Tuesday targeting China's undervalued currency -- and angering Chinese officials who have warned of a "trade war."

"China resolutely opposes the currency exchange bill passed by the U.S. Senate," said Chinese foreign ministry spokesman Liu Weimin. "This bill seriously violates World Trade Organization rules, harms bilateral economic and trade cooperation, and does not solve the economic and employment problems in the United States."

China's Ministry of Foreign Affairs spokesperson Ma Zhaoxu slammed the bill as "doing good to nobody, and it will bring nothing but harm!"

"The passing of the act, under the pretext of so-called 'currency imbalance,' is a protectionist measure in nature, which severely violates the WTO rules," said Zhaoxu. "Not only will it fail to solve the economic and employment problems in the U.S., but it will severely obstruct China-U.S. economic relations and trade."

The Senate voted 63-35to slap new duties on imports from nations whose currency is undervalued -- a provision aimed squarely at China's yuan, which has long been accused of hampering the U.S. economy. Lawmakers say the bill is intended to help U.S. businesses hurt by ongoing global trade imbalances and lost business to Asian nations.

But the Republican-controlled House won't take up the bill, Speaker John Boehner has said, making Senate passage more of a political exercise than an attempt at legislating. Boehner has called the bill "dangerous."

On Monday, before the act was passed, a Chinese official warned of a "trade war"

"Should the proposed legislation be made into law, the result would be a trade war and that would be a lose-lose situation for both sides," said Vice Foreign Minister Cui Tiankai. "It would be detrimental to the development of economic ties and might have an adverse impact on bilateral relations."

President Obama has yet to fully embrace the measure, warning last week he didn't want to pass "symbolic" laws that could be slapped down by the World Trade Organization.

For years, U.S. officials have been pressuring China to allow its currency -- which is also known as the renminbi -- to appreciate more rapidly. Between 2008 and 2010, China had pegged its currency to the dollar, keeping its value artificially low.

While China had allowed its currency to appreciate a little in the last year, bipartisan supporters of the Senate bill say China has not done enough. They claim the renminbi is undervalued by 25%-30% against the dollar, which means Chinese exports to the U.S. become 25%-30% cheaper, while U.S. goods exported to China are more expensive.

Besides hiking tariffs on Chinese goods, the bill also takes aim at the administration, which already has some ability to point out nations that purposefully manipulate their currency but has avoided doing so.

The bill would:

-- Force the administration to officially red-flag nations whose currencies are undervalued for long periods with the term "fundamentally misaligned currency."

-- Make it tougher for the Commerce Department to ignore calls to investigate accusations of undervalued currencies.

-- Force the administration to give Congress a list of nations with "misaligned" currencies.

And if a nation is accused of having an undervalued currency and makes no effort to rebalance the currency for three months or more, that's when the tariffs kick in.

-- Prevent the federal government from buying goods and services from that nation.

-- Prevent the U.S. trade promotion agency, the Overseas Private Investment Corp., from investing in that nation.

Most big business groups, from the U.S. Chamber of Commerce to the Club for Growth, oppose the bill. Union groups support it.

The Obama administration has taken the stance that the best course of action is diplomacy and not knee-jerk penalties, pointing out China's moves to allow the yuan to appreciate slightly.

Despite the bill's overall grim prospects, Democrats frustrated with political stalemate on so many other issues wanted to push forward on the currency bill to have something more to show for the past year of gridlock.

And while the bill targeting China currency picked up Republicans, it lost a few votes on the other side of the aisle.

Sen. Joseph Lieberman, a Connecticut Independent who caucuses with Democrats, said Tuesday that China's currency policy concerns him but he feared the bill would "aggravate the current global and American economic problems."

He said he understood the bill is intended to be a "warning shot across China's bow."

"But China, from its perspective, may see it as a direct hit on its bow and it may be tempted to retaliate economically," said Lieberman, who voted against the bill.